A commercial landlord and tenant might assume that in a professionally and comprehensively drafted lease, their respective rights to terminate it would be contained within the document. This is not necessarily the case. There is a now well established principle - the UK Supreme Court has referred to it as a ‘presumption’- against the abandonment of valuable common-law rights. It is necessary to set out such an intention clearly and unambiguously if that presumption is to be rebutted.
Leases as contracts
But what of such rights to terminate a lease? A lease, in English Law, is one of two ways of owning property. It is perhaps because of this, a lease being a species of property, that there had been an historical reluctance in our law to recognise it as a contract, with all the rights ordinarily incidental to any contract. That reluctance has been gradually eroded. For example Lord Diplock stated, now 47 years ago in United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904 (“United”), that “the mediaeval concept of rent as a service rendered by the tenant to the landlord has been displaced by the modern concept of a payment which a tenant is bound by his contract to pay to the landlord for the use of his land”. Subsequently, the House of Lords decided that a lease can also be ‘frustrated’, albeit in exceptional circumstances.
Repudiation of leases
Most recently, the Judicial Committee of the Privy Council (“UKPC”) accepted that there can be what is known as a repudiatory breach entitling the innocent party to terminate a lease, there being no good reason in principle why that should not be possible. In arriving at its judgment, the UKPC cited the case of Ramsbury, heard in the Caribbean island of St Christopher and Nevis, that concerned the right of a tenant to terminate its lease following a repudiatory breach by the landlord.
A repudiatory breach is where a party to a contract breaches a ‘condition’ of that contract or a term which deprives the innocent party of a substantial part or the whole of the benefit of that contract. This entitles the innocent party to terminate it in response.
Notably, authoritative judicial precedent in this country prior to Ramsbury to the effect that leases could be terminated in this way, was arguably thin on the ground . Such citation as there was in Ramsbury was apparently in ignorance of a Court of Appeal decision in 2006 in which it was expressly identified that, whilst other courts in England had either held ‘or assumed’ that a lease can be brought to an end by acceptance of a repudiatory breach, there was ‘no decision’ to that effect in the Court of Appeal itself. Despite this, the UKPC prefaced its judgment with the comment that there was no suggestion that the law in St. Christopher and Nevis differed from the law of England and Wales in this regard, and that it was now generally accepted that principles applicable to termination of a contract are similarly applicable to leases.
The status of Ramsbury
On three occasions the UKPC referred to the facts of the case in Ramsbury as ‘exceptional’. The facts, so far as they are relevant to the repudiation point, were that Ramsbury, as landlord, had issued a directive - in breach of the lease - to its tenant, Ocean View, prohibiting its 250 Mexican workers from eating meals or doing laundry on the leased premises. Ocean View had leased the adapted building to accommodate its workers whom it had specifically brought over in order to carry out hotel repairs following a hurricane, which Ocean View was contractually bound to carry out. The lease was a short-term let of seven months and Ocean View was held to have been entitled to terminate the lease in response to that breach.
It may be considered undesirable that the law on repudiation should be tacitly assumed applicable to leases based on an ‘exceptional’ case without any prior domestic, appellate decision on the point. That stated, Ramsbury will either now be treated as binding on the question or at least very highly persuasive and, whilst its facts may not re-occur, there may will be many cases in which the commercial consequences of breach are as outrageous as they would have been for Ocean View had Ramsbury’s conduct gone unchallenged.
It might be thought, so what? It’s been tacitly assumed to be the law because ‘there’s no good reason’ for it not to be as per the UKPC’s decision Ramsbury. But have the reasons for and against repudiation as applied to lease been properly considered, prior to the UKPC’s acceptance based on ‘developments’ which were ultimately predicated upon one, albeit scholarly, county court judgment?
The Court’s equitable jurisdiction – a reason against repudiation of leases being part of the law?
Whilst in Ramsbury it was the tenant who was entitled to terminate, such a right would, in principle and again subject to clear wording to the contrary, apply to a landlord also. A landlord is also entitled to terminate a lease by forfeiting the same under its express terms, either by physical re-entry or service of possession proceedings. Where a landlord does so however, the tenant is entitled to apply to the court for relief from forfeiture.
Equitable relief from forfeiture is a remedy of ancient origin and is now a mixture of both equity and statutory control. In appropriate and limited cases the courts relieve against forfeiture for breach of covenant or condition where the primary object of the bargain is to secure a result which can be attained when the matter comes before the court and where the forfeiture provision is added by way of security for that result.
It is entirely conceivable that there will be cases where a tenant’s breach of covenant or condition would entitle the landlord either to forfeit the lease as usual or, now in light of Ramsbury, treat the lease as repudiated. Assuming the landlord has properly exercised its right to terminate on the latter basis, whether the court has the power to relieve the tenant against the consequences of the landlord electing that course, is at best uncertain and at worst non-existent.
That is ironic when the role which relief from forfeiture plays is preventing the unconscionable abuse of strict legal rights for purposes other than those for which they were conferred. We may now find shrewd landlords exercising a right, or purported right to treat the lease as repudiated rather than forfeit precisely because equity may have nothing to say about that situation.
Conclusion
There has been gradual acceptance by the courts of England and Wales that contractual rights apply to leases as they do to any other contract and, in that respect, the outcome in Ramsbury is both consistent with the trajectory and expected.
That stated, the law on repudiation has arguably been too often tacitly assumed to apply to leases without prior authoritative decision to that effect in this jurisdiction and that means the arguments as to why there may be ‘good reason’ it should not, may not have been properly had.
As things stand, it is highly likely that the law on repudiation does apply to leases so landlords considering bringing a lease to an end would be well-advised to consider all the options in their individual cases.
Deciding to bring a commercial relationship to an end is a very significant decision and carries major financial and other implications. For this reason, independent legal advice should be sought before a decision is taken. This means all options can be considered, together with broader strategic objectives, in order to identify the best and most cost-effective solution in the circumstances before proceeding further. Please contact Wright Hassall’s commercial property disputes team which can advise you on both this and many other matters.
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